S&P: Various Rating Actions Taken In Spanish SME CLO Transaction FTPYME Bancaja 3 Following Review
FTPYME Bancaja 3 is a single-jurisdiction cash flow collateralized loan obligation (CLO) transaction securitizing a portfolio of small and midsize enterprise (SME) loans that Caja de Ahorros de Valencia, Castellon y Alicante originated in Spain. The transaction closed in October 2004.
We have applied our European SME CLO criteria to assess the portfolio's average credit quality (see "European SME CLO Methodology And Assumptions," published on Jan. 10, 2013). In our opinion, the credit quality of the portfolio is about 'ccc', based on the following factors:
Our qualitative originator assessment on Caja de Ahorros de Valencia, Castellon y Alicante is moderate. Spain's Banking Industry Country Risk Assessment (BICRA) is 5 (see "Banking Industry Country Risk Assessment: Spain," published on June 23, 2016).We received only limited information on the credit quality of the originator's entire loan book. We used our 'ccc' average credit quality assessment of the portfolio to generate our 'AAA' scenario default rate (SDR) of 86%.
We have calculated the 'B' SDR, based primarily on our analysis of historical SME performance data and our projections of the transaction's future performance. We have reviewed the portfolio's historical default data, and assessed market developments, macroeconomic factors, changes in country risk, and the way these factors are likely to affect the loan portfolio's creditworthiness. As a result of this analysis, our 'B' SDR is 12%.
We interpolated the SDRs for rating levels between 'B' and 'AAA' in accordance with our European SME CLO criteria.
RECOVERY RATE ANALYSIS
At each liability rating level, we assumed a weighted-average recovery rate (WARR) by taking into consideration the asset type (secured/unsecured) and the country recovery grouping (see table 7 in our European SME CLO criteria) and observed historical recoveries.
As a result of this analysis, our WARR assumption in a 'AAA' rating scenario was 27.42%. The recovery rates at more junior rating levels were higher (as outlined in our European SME CLO criteria).
CASH FLOW ANALYSIS
We used the portfolio balance that the servicer considered to be performing, the current weighted-average spread, and the WARRs that we considered to be appropriate. We subjected the capital structure to various cash flow stress scenarios, incorporating different default patterns and interest rate curves, to determine the rating level, based on the available credit enhancement for each class of notes under our European SME CLO criteria.
Our foreign currency long-term sovereign rating on the Kingdom of Spain is 'BBB+'.
The results of our credit and cash flow analysis indicate that while the class C notes have sufficient credit enhancement to withstand higher defaults, they are not able to pass the sovereign default stress test in our criteria for rating single-jurisdiction securitizations above the sovereign foreign currency rating (see "Methodology And Assumptions For Ratings Above The Sovereign--Single-Jurisdiction Structured Finance," published on May 29, 2015). In accordance with our criteria, this would imply that the class C notes may not be rated any higher than the long-term sovereign rating on Spain. Taking into account the results of our credit and cash flow analysis and the application of these criteria, we have raised to 'BBB+ (sf)' from 'BB (sf)' our rating on the class C notes.
Our analysis indicates that the available credit enhancement for the class D notes is commensurate with the currently assigned rating. We have therefore affirmed our 'CCC (sf)' rating on this class of notes.